In recessions, the long-term expected real interest rate usually
A)rises.
B)declines.
C)stays unchanged.
D)rises early in the recession; declines later in the recession.

Question

Quizplus · Accepted Answer

In recessions, there is typically a decrease in demand for goods and services, which leads to lower inflation rates. As a result, the long-term expected real interest rate (the nominal interest rate adjusted for inflation expectations) also decreases. This is because lenders can charge lower interest rates to borrowers and still earn a positive real return.

In Recessions, the Long-Term Expected Real Interest Rate Usually